Friday, January 07, 2011

¿QUIÉN PODRÁ DEFENDERNOS?

The Externalizing MachineThe corporation's unique structure is largely to blame for the fact that illegalities are endemic in the corporate world. By design, the corporate form generally protects the human beings who own and run corporations from legal liability, leaving the corporation, a “person” with psychopatic contempt for legal constraints, the main target of criminal persecution. Shareholders cannot be held liable for the crimes committed by corporations because of limited liability, the sole purpose of which is to shield them from legal responsibility for corporation's actions. Directors are traditionally protected by the fact that they have no direct involvement with decisions that may lead to a corporation's committing a crime. Executives are protected by the law's unwillingness to find them liable for their companies' illegal actions unless they can be proven to have been “directing minds” behind those actions. Such proofs is difficult if not impossible to produce in most cases, because corporate decisions normally result from numerous and diffuse individuals' inp uts, and because courts tend to attribute conduct to the corporate “person” rather than to the actual people who run the corporations.The corporation itself is thus the most viable target for prosecution in most cases, and, because it has “no soul to be damned and no body to be kicked”, as Edward Thurlow, lord chancellor of England, observed in the eighteen century, punishing the corporation often has little impact. Like the psychopath it resembles, the corporation feels no moral obligation to obey the law. “Only people have moral obligations”, as Frank Easterbrook, a judge and legal commentator, and law professor Daniel Fishel observe in an article they coauthored. “Corporations can no more be said to have moral obligations than does a building, an organization chart, or a contract.”

For a corporation, compliance with law, like everything else, is a matter of costs and benefits. “Again and again in America we have the problem that whether [corporations] obey the law or not is a matter of whether it's cost effective,” says Robert Monks. “If the chance of getting caught and the penalty are less than it costs to comply, our people think of it as being just a business decision.” Executives, when deciding whether to comply or break a law, “behave rationally and... make cost effective decisions,” says Monks, which means they ask, “What's the penalty, what's the probability of being caught, how much does that add up to, and how much does it cost to comply and which is bigger?”Law professor Bruce Welling states the logic this way:

The practical business view is that a fine is an additional cost of doing business. A prohibited activity is not inhibited by the threat of a fine so long as the anticipated profits from the activity outweigh the amount of the fine multiplied by the probability of being apprehended and convicted. Considering the amount of the average fine, deterrence is improbable in most cases. The argument is even more obvious regarding prevention of recidivism. The corporation, once convicted and fined, will simply have learned how to cover its tracks better.”

The irony in all is that the corporation's mandate to pursue its own self-interest, itself a product of the law, actually propels corporation's to break the law. No corporation is exempt from this built-in logic, not even those that claim they are socially responsible, as a second look at British Petroleum reveals.

On August 16, 2002. Don Shugak, a British Petroleum technician, was making his rounds at the company's Prudhoe Bay oil field in Alaska, checking wells for leaks and other problems. One of his assignments was to reactivate a well that had been shut down for repairs. BP engineers knew that well still had problems and would operate at unusually high pressures once reactivated, but they gave Shugak the green light anyway. Shugak opened the valve to reactivate the well and then left the site. Several hours later he returned to bleed off pressure from the wellhead, a routine procedure. Though he remembers opening the well-house door on his return visit, his recollection of what happened after that is vague. It was hard to breathe, he recalls; his ears were ringing and his legs were paralyzed. He clung to the side of his truck, which was parked nearby, and made his way to the other side of it to shield himself from the heat of the massive explosion that just had occurred. “I started crawling two and three inches at a time with my elbows”, he recalls. “I tried rolling because my elbows were so tired, but my legs kept getting tangled up.” Fortunately, a coworker had heard the explosion and seen the now-forty-foot flames from a distance. He rushed to the scene and called for help. “I didn't even feel like I was hurt,” said Shugak, “I didn't feel anything. I just knew nothing was working the way it was supposed to. Everybody was talking in hushed tones.”

Shugak woke up in a Seattle hospital burn unit two weeks later with burns covering 15 percent of his body, a broken leg, and badly damaged knees and vertebrae. He was lucky to have survived.

Many of Shugak's coworkers blame the accident on BP's persistent failure to comply with maintenance and safety regulations, about which they had complained well before the accident happened. In a 1999 letter to BP's chief executive John Browne, operators alleged that the company was not “in compliance with statutory and regulatory requirements.” They cited a leaky valve as a factor in a 1998 spill of 1,200 gallons of oil and thousands of cubic feet of gas. The incident was ranked by the company at the most serious level, in terms of potential employee deaths and environmental damage -”All we needed was a spark and that plant would have burned to the ground,” one operator said at the time. A report following the incident called for a proactive maintenance program to check all similar valves and replace them if necessary, echoing a recommendation made five years earlier by the state regulatory agency responsible for oversight of the valves. Neither recommendation was implemented, according to BP operators, and the valves continue to be prone to leaks. Even the three years later, in spring 2001, state inspect ors found that one third (nine of thirty) of the pads at one BP's drilling platforms were defective and did not comply with regulatory standards.

On July 16, 2001, a month before Shugak's accident, a group of BP operators had contacted BP's probation officer, Mary Barnes, and alleged that the company was in breach of a 1999 probation order. The order had been issued by an Alaskan court, which had convicted BP of “one felony count of knowingly failing to immediately report the release into the environment of a hazardous substance.” BP had wrongfully acquiesced, over a two-year period, to illegal discharges of hazardous substances by one of its contractors. The company was fined the maximum penalty of $500,000 and placed an organizational probation”. The probation conditions included an undertaking by the company to comply with “best environmental practices in order to effectively protect workers, the public and the environment and to comply with the statutory and regulatory requirements.” In their letter to the company's probation officer, the BP operators alleged that the “BP operations are... undeniably not in compliance with Government regulations,” citing numerous examples of regulatory breaches, many relating to the safety valves.

For BP, however, it appears that regulatory standards are just another factor to be considered in its cost-benefit analyses. Like other large oil companies, BP allocates operating budgets to oil fields on a “cost per barrel” basis. As the production in a field declines, so too does the field's operating budget. From the perspective of profitability, that makes eminent sense, as companies want to maintain their profits levels even as fields become less productive. From a safety and maintenance perspective, however, according to BP operator William Burkett in a testimony before Senate committee on Alaskan oil,

This creates a situation that quickly impacts manager's ability to maintain the equipment in the field. The primary reason for that is, the equipment used to produce oil prior to decline is, for the most part, still in operation. In fact, often more equipment is added and more wells drilled as the field matures to slow the production decline. So, what happens is there is a much more equipment in service with an increasing need for maintenance as it ages, while, the budget to operate and maintain the equipment decreases with the production decline.

In 1988, production at the Prudhoe fields began to decline, and the dangerous logic of “cost per barrel” analysis went into play. “London knew what to do to keep the dollars coming”, says Burkett. “Cut. Cut the budget, cut the employee numbers, cut wages, cut spare parts, cut maintenance, cut supervision-just CUT!” In 1992, BP began a downsizing program that would eventually leave the company with one-third fewer employee at its Prudhoe operations, the reason, says Burkett, that there are now too few technicians to monitor and maintain the aging infrastructure and ensure that it complies with regulatory standards.

In the wake of Don Shugak's accident, the Alaska Oil and Gas Conservation Commission, the regulatory agency responsible for overseeing BP's operations, heard testimony on whether new regulations were needed to protect workers and the environment from poorly maintained wells. Not surprisingly, BP opposed the introduction of new regulations. But even if new regulations were enacted, would they make a difference? Burkett thinks not. “All the regulations in the world do little good if there is no enforcement”, he says. Enforcement remains a serious problem in Alaska's oil fields, as a recent article in the Wall Street Journal observed:

Alaska's legislature...eager to please the industry, has gutted the state agencies for regulating oil-field safety...The paucity of resources makes it hard for Alaska's oil-safety inspectors to do their job. Stretched by the state's vast terrain and its 3,500 wells, the five inspectors say they schedule their field tests with the oil companies to ensure that the inspectors don't travel thousands of miles only to discover that necessary personnel or equipment aren't around. Lost is the element of surprise that regulators in some other major oil-producing states swear by as the crucial component in keeping oil companies honest...Instead, Alaska's safety regulators operate on trust.

Throughout the economy today, the regulatory system often fails because of lax regulations and ineffective enforcement. Until that changes, we shall continue to suffer unnecessary disasters and harm to people, communities, and the environment. That is the price we all pay for the proclivity of corporations to profit by harming others.